With the Bank of Finland projecting that the country’s debt-to-GDP ratio will exceed 60 per cent in 2015, Markku Kotilainen foresees that Finland’s credit rating would be in jeopardy.

FINLAND’s AAA credit rating may be in jeopardy in the years to come due to mounting government debt and bleak economic outlook, experts caution. The Bank of Finland, for example, projects that the country’s debt-to-GDP ratio will exceed 60 per cent – a limit designated in the European Stability and Growth Pact (SGP) – already in 2015. “Rating agencies would react, and Finland’s credit rating would be in jeopardy,” views Markku Kotilainen, a research director at the Research Institute of the Finnish Economy.

As a result, Finland’s borrowing costs might gradually creep up and thus further hamper the effort to restore the ratio to a more sustainable level. In addition, the Finnish economy would come under fiscal surveillance by the European Union. “In that case, the EU would forward guidelines to Finland,” says Kotilainen. “And if the guidelines are not complied with, sanctions may follow.” The sanctions, imposed by the SGP’s corrective arm, may entail deposits and ultimately fines.

Current measures insufficient

Elsewhere, Kotilainen believes the lacklustre growth of the Finnish economy has prevented the current Government from introducing adaptation measures called for in the government programme. “The current measures will not reverse the debt-to-GDP ratio,” he states.

The daunting task of reversing Finland’s debt trend is thus expected to fall to the next couple of governments, says Pasi Holm, the managing director of Pellervo Economic Research. Yet, Holm stresses that measures to check the incurring of debt should be introduced gradually and decisively. “If you take decisions with your back against the wall, the answers may be more extreme,” he says.

Prime Minister Jyrki Katainen’s (NCP) Government is set to convene in late August for a budget session, after defining the outlines of public spending in the spring.

Matias Åberg – STT
Aleksi Teivainen – HT